For only the second time since it's been estimating the totals, Fidelity Investments reported recently that the average projected cost of health care expenses for retirees has gone down. A 65-year-old couple exiting the workforce in 2013 is estimated to need $220,000 to cover health care costs throughout their retirement, an 8% decrease from last year's $240,000.
Fidelity Benefits Consulting, which has calculated the estimates since 2002, doesn't include nursing home costs in its projections, which apply to retirees with traditional Medicare insurance coverage.
For many, health care will be the largest expense during retirement and Sunit Patel, senior vice president at Fidelity, tells EBN that unlike food or shelter, "which you can dial up or down," health expenses associated with aging are relatively fixed, regardless of income bracket or savings.
"While this is great news for retirees in general, I think the expectations should be that trends ... are going to go up," Patel says.
From 2002 to 2012, Fidelity's estimate increased by an average of 6% a year. Only once before has it decreased - in 2011 because of a one-time adjustment to Medicare regarding out-of-pocket spending for prescription drugs. Brad Kimler, executive vice president of Fidelity's Benefits Consulting, says the drop may not amount to much in the long run.
"While lower, this year's estimate is still daunting for many retirees, and it will consume a considerable amount of a couple's retirement savings," Kimler says. "It is extremely important that health care costs are factored into retirement savings strategies today so that retirees can be prepared to pay their medical bills throughout retirement."
Factors that could have attributed to the price decline include a decreased utilization of medical services as Americans forgo treatment they can't afford, smaller payments to providers and an influx of baby boomers into the Medicare population, lowering its average age. This last cause will reverse itself as those boomers reach more expensive ages.
Participants continue to underestimate their retirement health care expenses. According to a different Fidelity survey, nearly half (48%) of those ages 55 to 64 think they will need only $50,000 to pay for health care in retirement.
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